Investing in state might be too expensive, should I go out of state or just wait?

Question

So I would love to invest by the end of this year/early 2024. The only problem is that South Florida's market is just too expensive to buy into right now especially as a first time homebuyer. So I'm kind of stuck in the process of, do I house hack? Do I take the risk of investing out of state where I can maybe get more for my money, or do I just keep waiting and save up for this market. Rental arbitrage has crossed my mind but I'm not sure this is the best route to go. I want to have equity and also rental arbitrage seems a bit risky. What do you think? If there is another thread similar to this, please let me know as I would hate to waste anyone's time. Thank you so much in advance.

Jonathan Vasquez · Answer

Hi @Marcos Medeiros I think staying in state but possibly looking at a market a couple of hours away may be more beneficial. First things first is of course to really get a solid plan in tact with how you will fund this deal and how much cash you have on had to work with. I actually left South Florida for the Tampa market as the prices are not as costly. Let me know if you'd like to discuss and chat more to see what would work best for you

Edward Dean · Answer

House hack is likely the better option. You need to live somewhere and right now that is South FL. You say you want to stay there which means you still need to pay for a living situation whether that is rent or a mortgage. If prices are high there, rent is likely high too. So, if you invest out of state is that going to cover your rent in FL and give a return? Doubtful. In other words, getting say $400 a month in positive cash flow out of state while still having to pay say $2000+ a month in rent makes less sense than getting a home where you instead cut your costs down to say $1000 a month or less by renting a portion of the property out.

Better to get your foot in the door in FL with a house hack where you can reduce your living expenses as much as possible by renting rooms or finding a multi-unit property you can make work. Do this while saving for the next one. After a few years the home and rent will have hopefully appreciated (though even if it hasn't you will still have built equity through debt paydown) and then you can decide if you want to keep it as a rental, sell it and go for something better, or invest out of state.

Chris Picciurro · Answer

Then I would consider house hacking. Marry the property and date the rate.

Trent Dues · Answer

It isn't a bad idea to consider investing outside of your state, but there are inherently more risks with closing on a deal for a property you may have never flown out to see in person. If that is the route you choose, be sure to pay for a reputable home inspection and renegotiate the purchase price based on the findings. And take the time to do the research on how much the closing will realistically cost you; I know in PA, the transfer tax alone on each property sale can be enough to discourage some investors. For example, if you were to buy in the city of Pittsburgh, the transfer tax of the sale will equate to 1% of the sales price paid to the state and an additional 4% of your sales price paid to the city, so before factoring in any closing costs/fees/ agent commissions etc, you are already adding on 5% of the agreed upon sale price. Every state calculates different, so doing the research upfront can save you a lot of money on the back end.

Patrick Drury · Answer

@Marcos MedeirosIf you're not able to invest locally or are not able to get the returns, you are looking for you should invest out of state. I would recommend looking in the Midwest. Columbus OH is a great place to start looking in the Midwest. It's a nice balance of cash flow and appreciation. Also, it has lots of job opportunities and population growth

Ray Hage · Answer

The previous responders make some good points. If you plan to live in south FL for a while, you'll want to do a house-hacking situation. If you think you will leave within the next 2-3 years, you're better off renting (ideally with room mates to cut down on costs) and invest in another market. I wouldn't try the rental arbitrage without experience of managing tenants before.

The downside of investing in another market is that it may be hard to find a good investor-realtor (not "investor-friendly" realtor) that will really help you find the deals to make money and grow your wealth. You may want to fly out there for a few days to see properties, etc.

You have a very hard decision to make but don't overanalyze either.

Hamp Lee III · Answer

Welcome to BiggerPockets!

I agree with many in the post to house hack. Have you talked with a lender to get a good idea of the likelihood of purchasing in Florida now? You don't have to obtain a hard credit check.

The greater you bring your circumstances into focus, the better you can plan your next steps.

I wish you all the best.

Chris Picciurro · Answer

What is your plan in 3 to 5 years from now from a living situation?

Marcos Medeiros · Answer

wow thank you so much, that is super insightful and helpful!

Account Closed · Answer

In 2023, out of state investing is very feasible, and many are very successful. I see a lot of out of state investors having success here in Columbus, but it requires a lot of research. Know your market a build a solid core 4 (lender, realtor, contractor, PM). If you can build a solid team in your OOS market, you will be far more likely to succeed. If you want to pursue OOS investing, begin researching a market to target and then find this core 4!

Investing in state might be too expensive, should I go out of state or just wait?

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